March Deposits and Loans Both Decrease... Bank NIM Expected to Continue Rising Trend

As Investment Enthusiasm Cools in Stock and Real Estate Markets, Loan Repayment Activity Increases

[Asia Economy Reporter Minwoo Lee] Last month, both household loans and total deposit balances at commercial banks decreased. Amid tepid investment enthusiasm in the stock and real estate markets and rising interest rates, there appears to be a movement toward repaying loans.

According to the financial industry on the 1st, the outstanding household loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?were recorded at 703.1937 trillion KRW. This is a decrease of 2.7436 trillion KRW compared to the previous month. Since last year's total household loan volume regulation, commercial banks have been managing loan demand, resulting in a decline in household loan balances for three consecutive months.

In particular, unsecured loans decreased. Last month, the outstanding unsecured loans at the five major banks amounted to 133.3996 trillion KRW, down 2.4579 trillion KRW from the previous month. Meanwhile, outstanding mortgage loans and jeonse (key money deposit) loans increased by 65 billion KRW and 393.8 billion KRW respectively, reaching 506.7174 trillion KRW and 131.3349 trillion KRW during the same period.

However, the total loan volume is expected to increase this year. Kim In, a researcher at BNK Investment & Securities, stated, "This year, total loans are expected to grow around 5% due to mortgage loan volume regulations and strengthened risk management following high growth over the past two years. Additional growth is also possible with the new government's easing of mortgage loan regulations."

Net interest margin (NIM) is also expected to continue rising through the second quarter. As of the end of February, the weighted average total loan interest rate was 3.20%, up 8 basis points (bp; 1bp=0.01%) from the previous month, and the weighted average total deposit interest rate also rose by 5bp. Consequently, the weighted average loan-to-deposit interest rate spread expanded by 3bp to 2.27 percentage points (p) compared to the previous month. The interest rate on new loans in February was 3.56%, an increase of 11bp from the previous month, and the loan-to-deposit interest rate spread on new loans rose by 6bp to 1.86p. Researcher Kim noted, "Following three base rate hikes, the loan-to-deposit interest rate spread based on balances increased by 6bp in January and February. Therefore, after a 5bp rise in NIM in the fourth quarter compared to the previous quarter, an additional increase of around 5bp is expected in the first quarter."

This content was produced with the assistance of AI translation services.